Penetrating Online Fashion Marketplaces

Online marketplaces have surfaced as a lifeline for brands as physical retail faces disruption. However, choosing the right channels and optimising assortment allocation by retailer comes with its own set of challenges. This report details key considerations for brands to boost online expansion, with attention to assortment and pricing.

Written by Ashley LooiJuly 23, 2020

Introduction

Key Insights

  • The Right Channel: Understanding the market positioning and consumer profile of each online marketplace is important to inform strategic decision-making.
  • A Tailored Approach: Savvy brands allocate assortments tailored to the different online marketplaces to accurately meet demand, while protecting brand equity.
  • Cost Considerations: Every marketplace has vendor fee structure as well as pricing, discounting and promotion mechanisms that will impact the cost of doing business.

The onset of stay-at-home measures and supply chain disruptions brought about by Covid-19 have accelerated brands’ participation in online marketplaces.

While the number of newly reported cases dwindle in some parts of the world, most consumers plan to continue shopping online for apparel even when physical stores reopen. The main reason being the convenience and accessibility experienced when they had to resort to online shopping during the pandemic. The proportion of retail e-commerce sales in the UK is expected to hit 32.1% in 2024 from just 27.5% this year. With that, online fashion marketplaces are set to be part and parcel of the new normal.

Brands who have yet to penetrate online marketplaces in fear of cannibalising brick-and-mortar stores and direct-to-consumer (DTC) websites, will now have to reconsider carefully to remain competitive.

As brands embark on their digital journey, some struggle to find the right channel to expand their customer base. For others who participate in online fashion marketplaces, complications arise when it comes to optimising assortment allocation.

This report highlights the key factors of consideration for brands before entering new online marketplaces, with a focus on assortment and pricing.

Over 221,760 data points of prominent fashion marketplaces – Farfetch, Topshop and Asos UK from January to July 2020, were analysed for insights.

 

All data used in this report comes from products retailing online as tracked by Omnilytics, unless otherwise mentioned.

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Omnichannel Strategy

An omnichannel strategy enables fashion brands to meet consumers where they are – the physical and digital spaces.

In pre-crisis time, the emphasis in the fashion business was placed largely on moving from offline to online. Now entering the new normal phase, the emphasis has shifted to increasing online presence.

Focusing efforts purely on a brand’s own DTC website is not sufficient to stand out from the noise. Participation in online fashion marketplaces can increase a brand’s exposure to a wider consumer base and new customer segments.

When entering online marketplaces, the first factor of consideration is between a single-vertical or multi-vertical approach.

Single Vertical vs. Multi-Vertical Online Marketplaces

While the brand exposure that comes with multi-vertical marketplaces may be large, pricing must be aligned with the wider consumer base. Opting for a fashion marketplace will allow the spotlight to shine on apparel, rather than sharing it with other categories such as home and beauty.

A brand can allocate its progressive range to a single vertical marketplace, and its core range to a multi-vertical marketplace, and still enjoy success from both channels. The end message is about tailoring the approach to meet business needs.

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The Right Channel

While acquiring new customers is important, brand equity and reputation need to be considered when penetrating online marketplaces.

Marketplace Positioning

Asos offered an extremely wide variety of fast fashion items with over 1,100 brands, while Topshop had a modest offering with just 29 brands (Chart 1). This signals a wider consumer profile is shopping on Asos than Topshop.

Asos and Topshop have a low median price and average discounts of 37% and 42% respectively. Despite the disparity on the number of brands available, both marketplaces are positioned as fast fashion at affordable prices and deploy discounts to drive conversion. In terms of performance, Asos and Topshop both achieved high sell-out at above 60%, with the former performing marginally better.

Farfetch had a high median price of GBP 138 and a low average discount – indicative of its accessible luxury positioning in the fast fashion segment.

Alignment with the positioning of the selected marketplace is crucial to protect consumer perception and prevent brand dilution.

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The Right Channel (cont’d)

Brand Association

Another key consideration, in addition to assessing marketplaces’ positioning, is to analyse the other brands on a specific marketplace to ensure relevant association. This will attract a similar audience, ensuring exposure to the right target consumers.

The top 5 brands found retailing on Asos were Asos Design, River Island, New Look, Bershka and Pull & Bear – established fast fashion brands with extensive assortments that supplement each other in capturing a wider audience.

In comparison, the top brands on Topshop were Topshop, Freedom at Topshop, Glamorous, Jaded London and Quay Sunglasses. These brands carry more progressive and trendy designs, aligning with Topshop’s higher fashion quotient. Freedom at Topshop and Quay Sunglasses were recent additions to the Topshop marketplace.

Complementing other brands found on a marketplace can help with brand association. Consumers will affiliate the brand with the aesthetics of others. Association will prevent the brand from seeming out of place. Failure to achieve this will result in consumers gaining a distorted perception of the brand, which is damaging not only to the brand image, but also the relationship with marketplace buyers.

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The Right Channel (cont’d)

In the process of evaluating each marketplace, brands must also consider the operating costs and expected returns.

Operating Costs and Expected Returns

Establishing marketplace positioning and brand association can guide brands into forecasting expected returns. Brands need to recognise the potential new customer segment that comes from the new revenue stream. Next, consider the increased brand exposure that comes with participating in an online marketplace. Tech-enabled features such as product review tools, chatbots and augmented reality tools can help drive trade.

Internal Operating Costs

The expansion into a new marketplace will require a team to manage operations of the channel, incurring additional cost for manpower.

External Operating Costs

Marketplace fee structure must be determined for brands to gain a better understanding of future operating cost. Penetrating marketplaces will also require participation in marketplace-wide discounts and sales events like Black Friday and Cyber Monday. As an outcome, brands will experience reduced control over pricing, especially if the marketplace exercises a dynamic pricing model.

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Meet the Author

Ashley Looi

Ashley Looi combines her major in econometrics with her interest in fashion to help brands and retailers uncover actionable insights. She currently produces in-depth reports on the fashion industry and its changing retail scene across the United States, United Kingdom, Australia and Southeast Asia.

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